Business busts and U.S. auditors' interest in fraud detection: Evidence from the 20th century

We find evidence that U.S. auditors increased their attention to fraud detection during or immediately after the economic contractions of the 20th century, based on a content analysis of the 12 volumes of the 20th-century auditing reference series Montgomery’s Auditing. Contractions, however, do not seem to have affected auditors’ attention to the formal goal of fraud detection. The study suggests that auditors’ aversion to the heightened risks of fraud during economic downturns leads them to focus more on fraud detection at those times regardless of the particular guidance in formal audit standards. This study is the first to find some evidence of a recession-influenced difference between fraud detection practices and formal fraud detection goals.

Exploring the economic business case for incorporating biophilic urbanism

Linking sustainability, ecology and economics, this dissertation explored the decision making process for incorporating biophilic urbanism. Biophilic urbanism refers to the use of natural elements, or biophilic elements, as functional design features in urban landscapes to address climate change issues in rapidly growing economies. Informed by five global case studies, this dissertation introduced a novel term, ‘biophilic services’ to describe various characteristics that link the impact of biophilic elements to value. A model is also presented outlining underlying decision making logic for incorporating biophilic urbanism. These findings have immediate and practical implications for integrating biophilic urbanism into the fabric of the built environment.

After the rains: Water’s impact for valuation practices

Purpose The purpose of this paper is to reduce the potential for litigation by improving valuers’ awareness of water risks. As part of a valuer’s due diligence, the paper provides guidance as to how to identify such risks by explaining the different types and examining how online search tools can be used in conjunction with more traditional methods to evaluate the probability of these risks occurring. Design/methodology/approach The paper builds on prior research, which examined the impact of water to and for valuations. By means of legal/doctrinal analysis, this paper considers relevant issues from the perspective of managing client expectations and needs. In so doing it identifies online tools available to assist in identifying at risk properties and better informing clients. Findings While the internet provides a variety of tools to gain access to relevant information, this information most commonly is only provided subject to disclaimer. Valuers need to ensure that blind reliance is not given to use of these tools but that the tools are used in conjunction with individual property inspections. Research limitations/implications Although the examples considered primarily are Australian, increasing water risks generally make the issues considered relevant for any jurisdiction. The research will be of particular interests to practitioners in coastal or riverine areas. Practical implications Valuation reports are sought for a variety of purposes from a variety of clients. These range from the experienced, knowledgeable developer looking to maximise available equity to the inexperienced, uneducated individual looking to acquire their home and thinking more often than not with their heart not their head. More informed practices by valuers will lead to valuation reports being more easily understood by clients, thus lessening the likelihood of litigation against the valuer for negligence. Originality/value The paper highlights the issue of water risks; the need for valuers to properly address potential and actual risks in their reports; and the corresponding need to undertake all appropriate searches and enquiries of the property to be valued. It reinforces the importance of access to the internet as a tool in the valuation process.

Detecting drift from event streams of unpredictable business processes

Existing business process drift detection methods do not work with event streams. As such, they are designed to detect inter-trace drifts only, i.e. drifts that occur between complete process executions (traces), as recorded in event logs. However, process drift may also occur during the execution of a process, and may impact ongoing executions. Existing methods either do not detect such intra-trace drifts, or detect them with a long delay. Moreover, they do not perform well with unpredictable processes, i.e. processes whose logs exhibit a high number of distinct executions to the total number of executions. We address these two issues by proposing a fully automated and scalable method for online detection of process drift from event streams. We perform statistical tests over distributions of behavioral relations between events, as observed in two adjacent windows of adaptive size, sliding along with the stream. An extensive evaluation on synthetic and real-life logs shows that our method is fast and accurate in the detection of typical change patterns, and performs significantly better than the state of the art.

ACE Research Vignette 049: How Do Business Founders Use Business Plans?

This series of research vignettes is aimed at sharing current and interesting research findings from our team of international Entrepreneurship researchers. In this vignette Per Davidsson and Christophe Garonne examine the use of business planning among business start-ups.

The determinants of fair value measurements of banks: International evidence

The purpose of this study is to investigate the accounting choice decisions of banks to employ Level 3 inputs in estimating the value of their financial assets and liabilities. Using a sample of 146 bank-year observations from 18 countries over 2009-2012, this study finds banks’ incentives to use Level 3 valuation inputs are associated with both firm-level and country-level determinants. At the firm-level, leverage, profitability (in term of net income), Tier 1 capital ratio, size and audit committee independence are associated with the percentage of Level 3 valuation inputs. At the country-level, economy development, legal region, legal enforcement and investor rights are also associated with the Level 3 classification choice. Lastly, ‘secrecy’, the proxy for culture dimensions and values, is found to be positively associated with the use of Level 3 valuation inputs. Altogether, these findings suggest that banks use the discretion available under Level 3 inputs opportunistically to avoid violating debt covenants limits, to increase earnings and manage their capital ratios. Results of this study also highlight that corporate governance quality at the firm-level (e.g. audit committee independence) and institutional features can constrain banks’ opportunistic behaviors in using the discretion available under Level 3 inputs. The results of this study have important implications for standard setters and contribute to the debate on the use of fair value accounting in an international context.

The determinants of fair value measurements of banks: International evidence

The purpose of this study is to investigate the accounting choice decisions of banks to employ Level 3 inputs in estimating the value of their financial assets and liabilities. Using a sample of 146 bank-year observations from 18 countries over 2009-2012, this study finds banks’ incentives to use Level 3 valuation inputs are associated with both firm-level and country-level determinants. At the firm-level, leverage, profitability (in term of net income), Tier 1 capital ratio, size and audit committee independence are associated with the percentage of Level 3 valuation inputs. At the country-level, economy development, legal region, legal enforcement and investor rights are also associated with the Level 3 classification choice. Lastly, ‘secrecy’, the proxy for culture dimensions and values, is found to be positively associated with the use of Level 3 valuation inputs. Altogether, these findings suggest that banks use the discretion available under Level 3 inputs opportunistically to avoid violating debt covenants limits, to increase earnings and manage their capital ratios. Results of this study also highlight that corporate governance quality at the firm-level (e.g. audit committee independence) and institutional features can constrain banks’ opportunistic behaviors in using the discretion available under Level 3 inputs. The results of this study have important implications for standard setters and contribute to the debate on the use of fair value accounting in an international context.

ACE Research Vignette 051: How and Why is Small Business Managers’ Age Related To Business Growth?

This series of research vignettes is aimed at sharing current and interesting research findings from our team of international entrepreneurship researchers. This vignette, written by Professor Hannes Zacher, Professor Michael M. Gielnik and Dr Antje Schmitt, reports findings on relationships between small business managers’ age, their focus on opportunities, and business growth (sales and number of employees) over five years.

ACE Research Vignette #52: Business growth and new initiatives in small and medium manufacturing enterprises from a design innovation program

This series of research vignettes is aimed at sharing current and interesting research findings from our team of international Entrepreneurship researchers. This vignette, written by Dr Judy Matthews examines the effects of firm engagement with design innovation programs on entrepreneurial activities of small and medium enterprises.

A “business researcher” view on opportunities for psychology in entrepreneurship research

In this short essay I offer some “business researcher” advice on how to leverage a strong background in psychology when attempting to contribute to the maturing field of “entrepreneurship research”. Psychologists can benefit from within-discipline research, e.g. on emergence, small groups, fit, and expertise as well as method strengths in, e.g. experimentation, operationalisation of constructs, and multi-level modelling. However, achieving full leverage of these strengths requires a clear conceptualisation of “entrepreneurship” as well as insights into the challenges posed by the nature of this class of phenomena.

How small business managers’ age and focus on opportunities affect business growth: A mediated moderation growth model

Research on business growth has been criticized for methodological weaknesses. We present a mediated moderation growth model as a new methodological approach. We hypothesized that small business managers' age negatively affects business growth through focus on opportunities. We sampled 201 small business managers and obtained firm performance data over 5 years, resulting in 836 observations. Growth modeling showed systematic differences in firm performance trajectories. These differences could be explained by modeling focus on opportunities as a mediator of the relationship between small business managers' age and business growth. The study illustrates how mediation models can be tested using growth modeling.